Number Cruncher

Top stock holdings: Where the pros are putting their money

The Globe and Mail

Top 10 (Getty Images/iStockphoto)

What are we looking for?

The most common top-10 stock holdings of U.S. mutual funds and hedge funds.

Seeing what the managers like

Managers of mutual and hedge funds are working on a much larger scale than retail investors are, but on a basic level we’re all trying to do the same thing: maximize returns while managing risk. And they have an enviable heft of research and management access behind them that allows them to develop an intimate understanding of the stocks in their portfolios. Why not tap into their knowledge base by seeing where they are focusing their funds’ money?

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That’s just the thinking of Citigroup strategist Tobias Levkovich. Every quarter, he provides the firm’s clients with lists of the stocks that appear most frequently in the top-10 holdings of U.S. mutual funds and hedge funds. Last week, he published the lists as of the end of the second quarter (June 30).

Mr. Levkovich narrows his search to the top-10 holdings in each of the 50 biggest mutual funds and 50 biggest hedge funds in the United States, based on assets under management. In the tables accompanying this column, we’ve published the 10 stocks that show up most frequently in those top-10-holdings lists, for each of the mutual-fund and hedge-fund segments.

What we found

Mr. Levkovich noted that Apple Inc. overtook Microsoft Corp. as the most common top-10 holding for mutual funds, showing up on 22 of the 50 funds’ top-10 lists. It has been the most popular top-10 holding for hedge funds for the past several quarters.

He said fund managers’ top-10s continued to be dominated by the information technology sector: Of the 30 most common top-10 holdings, 33 per cent of them are technology stocks for the hedge fund group, versus 22 per cent for mutual funds. (The sector’s S&P 500 index weighting is 20 per cent.)

He also noted that fund managers shifted away from consumer discretionary and increased their consumer staples top-10 holdings in the second quarter, which was a relatively weak, defensive-focused quarter for the stock market. But he said the third-quarter numbers, when they become available, might show a reversal in this defensive trend.

“The high-beta rally thus far in the third quarter has likely affected portfolios, especially with investors holding a more defensive position,” he wrote in his report. “Some cyclical sectors have outperformed thus far in the third quarter, including energy, information technology, financials and consumer discretionary.”